Many conclusions we draw in life are based on some reference point, a constant, whether we realize it or not. Like whether you think it’s “cold” today depends on what weather you’re used to.
It’s all about perspective.
Gold, over the past two years, has been leading a double life. Most of us here in the U.S. would agree that gold has performed poorly, right? The price of Gold is down roughly 10% in two years. But down compared to what? In our case it’s the U.S. dollar, because that’s what we’re purchasing gold with.
If we look abroad, however, gold isn’t telling the rest of the world the same sob story. Comparing gold to the same international currency index that we compare the U.S. dollar to, we see that gold prices actually reflect positive movement in that same two-year period.†
So what does all this mean to you and me? Gold is a no good, two-faced, scoundrel who’s been lying to us about its value for two years? Not quite.
Source: Bloomberg 02/22/2016
Gold continues to act as a currency hedge; gaining value when your currency weakens, and losing value when currency strengthens. The graph above gives you a visual on this concept as you can see how gold reacted to price moves in the U.S. Dollar over the past year.†† This graph would look completely different for another currency, but the relationship would be very similar. Whether gold is doing “well” all depends on the financial climate in your corner of the world.
†From the Growth Stock Wire by Stansberry Research
†† We are not implying that currency is the only factor that effects the price of gold.
All the best,
Wesley R. Nicholson, Mike Allen and Aaron Everdyke
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